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When Tax Day Comes to Azeroth
1up is running a short piece originally from Games For Windows: The Official Magazine. It discusses the inevitability of taxation coming to virtual worlds, and a little bit about what that might mean in the indeterminate future: "Taxable income includes everything from tangibles like cookies to more ephemeral and subjective things like works of art, concert tickets, or advice. Those big, scary books that most sane people pay accountants to understand for them don't really narrow down what counts as taxable income so much as meticulously define it as damn near any piece of matter, energy, or information that should happen to pass into your possession over the course of the year. That goofy World of WarCraft gnome that GFW editor-in-chief Jeff Green's been leveling isn't any more intangible than, say, stocks."
Suppose i pay for my mmorpgs with game cards and use proxies to connect tot he game servers. how then can anyone be expected to track how much gold i have accumulated on my virtual d00d? I can see taxing the sale of virtual goods for real money (not that i agree with it), but it seems silly to expect purely in-game assets to be taxed.
With having tax collectors in the game that players can beat up and rob?
Just show them your EULA.
Blizz claims ownership of the items, thus it would be illegal for them to tax you on something you don't own.
Remember, you licensed it, you don't own it.
Tax time in WOW is stupid and will never happen. OTOH, Tax time in second life is a possibility.
As long as its one of 2 ways
:) (not to mention tax on electricity usage, network connections staff wages and all the other costs the company incurs, oh and on their profits if any)
1) VAT/sales tax on the subscription and game purchase - oh they already do this don't they?
2) On in game items that are bought and sold for real money - ie a commission on in game to real life transfers.
Anything else is just pure nonsense!!
$_="Slashdotter";$syn="OTT";s;..;;;sub _{print shift||$_};s!ash!Perl !;s=$syn=ack=i;tr+LLEd+BLAH+;_"Just Another ";_
The intangible gnome may be something ephemeral that comes in to my possession (in the sense that it is under my control) but if the analogy is to stocks, then wouldn't it make sense to be taxed when I cash out? I mean gains in the stock market aren't taxed until the stocks are exchanged for money and a capital gain is realized. The funny part really comes later in the discussion when people agree with the concept seemingly based on the idea that anything which causes joy should result in negative consequences.
more of the same on Twitter.
As soon as in-game wealth CAN be used as an actual source of income in the real world, I have no problem with it being taxed. :P
But as long as that "wealth" stays online and never gets exchanged for real money coming into my pocket, stay the fuck away from my ISK and T2 blueprint copies
By reading this signature you agree to not disagree with the post you just read.
1) WoW players pay Blizzard for service and access to data on their servers. The ownership of said data never leaves Blizzard.
2) There is no clear market value for any individual item or character in WoW until such time as it is "cashed out" or sold.
Taxation will come to virtual worlds, but it would be supremely idiotic to think that it would be worth anyone's time or effort to tax anything but money making transactions.
Any other scenario would see incredible resistance from companies like Blizzard. It's a programming hassle to keep track of everything as is, and now they have to maintain financial records on every denizen of Azeroth?
Majordomo: Behold Ragnaros, March has come! Perhaps we should do our taxes?
Ragnaros: TOOOOOO SOOOOOOOON!!!!!
Thunderclone: ONE MAN ENTERS! TWO MEN LEAVE! ONE MAN ENTERS! TWO MEN LEAVE!
Despite that fact that every gamer site & mag likes to get all fud-tastic in regards to MMO taxes, let's use our brains for a second. The only time that a tax would be applicable would be if real-world money changes hands. Selling gold / items / characters for money? You'd get hit with a sales tax or have to report this as taxable income. It might "suxxors," but if you can make a living by gold farming, then I'd certainly expect you to have to pay your taxes, too.
First of all, Blizzard would be in court the day any such ruling came down.
Second of all, if you legitimize the transfer of access to virtual property by assigning it real world value, you open it up to all the issues our money faces today.
Would you need some sort of FDIC-type entity to protect the guild bank? Guild leader gets keylogged, don't worry, your Epics are insured.
Repair bill insurance? Arguably your character is your main tool for earning. If he dies or takes damage while performing his function, the repair bills begin to stack up. Since insuring this guaranteed expense is unfeasible, can we write it off? What about the other built-in money-sinks? Arguably my epic mount is a sound investment towards future earnings. It will allow me to grind and gather more efficiently. Can I write off this 5200g expense? Can I write it off even if I've never sold virtual goods for real currency?
Credit? If I take out a loan from a guildie, and then I stall on paying him back, can he report me to a real world collector? Will it affect my credit score? I'm sorry sir, we regret to inform you that we cannot finance your home at this time. Apparently you have a large outstanding debt with xlegolasx. Would this spawn lenders and credit-issuers in game? "Mastercard, accepted at Auction Houses everywhere. Yes, even Gadgetzan."
I'm just saying. Tax people if they earn money from anything. That's fair, it's the law. But taxing people who don't have any intention on making money from their hobby would cause more problems than it's worth. Yeah, that still sums up the issues in my mind.
"By the time they had diminished from 50 to 8, the other dwarves began to suspect 'Hungry.'" -Gary Larson
Please! A share of stock is ownership of a piece of the company. It gives you the right to vote on decisions made by the board of directors, and it may entitle you to receive dividends based on the company's profits. There are limitations on a company's ability to issue new stock. These are the reasons why stocks are tangible and have value. Yes, your stock is probably just bits on server that keeps track of how many you own, but those bits represent actual ownership of an actual company. When someone buys my stock, they are paying for that ownership, not for the bits that represent that ownership. This is quite tangible.
Your gnome is bits on a server, and that's it. Those bits don't even represent anything in the real world; the bits are the entirety of the thing's existence. The server owners could delete those bits at no cost except your annoyance, or they could duplicate those bits so everyone on the server has three dozen exact copies of everything you own. If you can get someone to buy those bits from you, they are still buying nothing but bits. There is no connection to anything outside the world of bits, and hence the gnome is truly intangible.
I mean that's just silly. My bank account is just data on a server -- except that data represents very real, very tangible currency. Cash is no more tangible than your WoW character -- yeah right!
All this means is the same thing that it has always meant regarding taxation: The second my in-tangible, non-existent thing (my online gaming bits) is turned into something tangible (like a stock or wad of cash) then you tax it. How much do you value the bits at for tax purposes? The amount they were sold for. Simple. And we're done. We don't need a whole new section of tax code about the value of things that don't exist or even represent things that exist.
The enemies of Democracy are
Haven't we discussed this enough?
So, Blizzard owns your account. You own nothing, therefore, they'd have no reason to track sales. Now, a company like Linden, on the other hand, wouldn't have that loophole.
Build it, and they will come^Hplain.
If an asset is important enough to be taxed, than it must be of enough value to be considered an item of value in the civil and criminal courts.
But seriously... Hands off my gold!
-jX
Don't you just love politics? It's like a comedy of errors.
Nothing to see here, move along...
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
> it would be illegal for them to tax you on something you don't own.
They are taxing the income, not the asset. If I sublet my apartment, I can be damn sure the government will tax that income.
Done with slashdot, done with nerds, getting a life.
There are only two things in this world that you cannot escape: taxes and the wow graveyard
If you look like your passport photo, you're too ill to travel. - Will Kommen
You've heard the likes of Steve Forbes say that a flat tax would work wonders for the U.S. Why not use a virtual world setting to test it out? That is, have a virtual world where there is progressive taxation, and another where there is flat tax. Then, measure the effects. I mean, why not use virtual worlds to test out various economic theories?
What those who want activist courts fear is rule by the people.
Regarding real-world sales of in-game items only:
We'll never have to pay taxes on things we don't own.
If you sell something you don't own, and you pocket the profit, you still owe taxes on it. If you steal car, and then sell that car, you can be convicted of tax evasion unless you pay taxes on the profit, with your "cost basis" correctly set to $0. Yes, this is true even if you are separately convicted of the theft.
If I go to the library and rent a really popular book, and the next person on the waiting list offers me $250 to give the book to him, I would need to pay tax on that income. The book never belonged to either of us; he'll still have to return it to the library when he's finished with it.
In short, it's not "We'll never have to", it's "We already have to".
Which of course makes this "Not real news because existing laws apply" .
It doesn't hurt to be nice.
If you receive "real-world" income for your MMO loot (i.e. eBay), than of COURSE that is taxable income, just as much as tips for juggling on a street corner are taxable income. If you never get money for the loot, and the trading of loot for eventual real-world income is not a business of yours, then it is not taxable.
.pdf file, but you have received money for it. The sale of the items are most certainly taxable.)
For example:
Not taxable: I kill a Super-Mega-Nasty-Dragon and loot the epic Item Sword-of-Greatest-Butt-Kicking. I use it to slay more vitual things, and eventually get bored and let my account lapse, I have no taxable income. Since the TOS doesn't actually allow the sale of virtual items on eBay, my item theoretically has no value, and I have received no money for the worthless item. This is no different from (from a tax perspective) from taking a $5.00 canvas, $1.00 of paint, and making a masterpiece worth millions, but hanging it up in your living room until it falls apart.
Taxable: I kill the aforementioned Dragon and sell the sword on eBay. I have now sold something and received money for it. It now has a value (because I sold it), and that income is taxable, but I could possibly deduct my monthly payment, bandwidth bills, etc., according to the normal (extremely complicated) rules for deducting business expenses. Even if though the item is not physically tangible, you have essentially performed a service for somebody (by obtaining the item so they didn't have to), and they have paid you real money for it. (Similar example: You sell 500 copies of "eBay loot-selling secrets" for $5 each. The item consists of nothing more than a
Maybe taxable: I buy the sword off of eBay, and trade the sword with somebody else for an item that goes for more money on eBay. Is that taxable? Maybe. If you make a business off of selling items on eBay, it just might be. Barter is just as taxable as cash transactions. (Although harder to compute.) If you are just a player executing a trade for something nicer, and don't sell stuff for cash, I'm going to have to say that it probably is not taxable. You are trading an intangible item with somebody else. You never receive cash money for it (or any other item), it isn't a tangible object, I don't see the income.
The IRS will eventually have to write rules on this for the "Maybe", but I don't think they will affect the vast majority of players. No cash money for items, no taxable income, and almost everybody lives happily ever after.
SirWired
It doesn't matter if you own it or not - this is income tax, not property tax. If you receive a good or service in exchange for another good or service, then it is possible that it could be taxed as income. But I really don't think that is going to happen. The motivation for the complex definition of income is to prevent people from sheltering *large* increases in wealth by receiving the payment in a form that does not fit the regular definition of salary or capital gain. The IRS and congress couldn't care less about the piddling trade that is taking place with-in virtual worlds, because it isn't being used as a tax shelter. All they care about are the people that are receiving real world income providing a service to gamers (gold farmers, item crafting, etc).
Sure, but my epic gear is on my character and soul bound, I can't sublet it. I draw no income from owning said gear(which as we have established via the EULA, I do not actually own). In fact, if they really wanted to tax me on it, they would end up owing me since my Wow habit is a total loss. In which case I would deduct my monthly fees for my account, the electricity to run my machine for the hours I played that year(statistics which are easily obtainable), then theres the matter of the costs of my internet connection. How about depreciation? The gear I got a year ago is not worth the same as the gear you can get today. Do I get to claim deprecation losses? They can't have it both ways. If you want to tax my virtual possessions, make sure that I am actually gaining income otherwise I get to claim it as a loss.
> If you want to tax my virtual possessions
I just got through saying that that's precisely what they're not taxing. Pay attention, son.
Done with slashdot, done with nerds, getting a life.
Hm. Wouldn't they only have to pay on the profit they made if/when they sold them?
I think this is really how the 'taxation' in online games is going to end up working. It's like stocks right now. If I go and buy stocks (with my post-tax income), I don't pay any taxes on the appreciated value of those stocks until I go to sell them. Then, the year I sell them, I have to go back and figure out what I paid for them, to establish the cost basis, and compute the capital gain.
I don't see why a +20 "Sword of Toestubbing" would be any different. Assuming you pay for it using a virtual currency that you bought using post-tax income, it's just like a stock. When you go and sell that, the income that you derive from the sale is taxable as capital gains, and if you want to avoid having 100% of the sale price taxed, then you need to go back and establish what the cost basis was of the investment.
IMO, the IRS doesn't seem to care too much about non-cash investments until you go to sell them. You can buy a stock, and that stock can split, reverse-split, do all sorts of stuff. It only becomes an issue (setting aside dividends) when you turn it back into greenbacks.
"Ladies and gentlemen, my killbot features Lotus Notes and a machine gun. It is the finest available."
Actually - the tax hobby loss rules, would not allow that. You need to show the IRS that you are engaged in a business for profit and not just a hobby to claim losses in excess of revenue. As a hobby - you can only claim expenses to the extent of revenue and any excess loss, cannot be carried forward. Sorry.
I'm going to be the first one to level the new accounting profession to 375 so I can handle peoples' online tax forms! I'll be rich! I'll have to get some investors so that I can offer advances on expected refunds and I can charge huge interest rates! Look for my new office in Org...
If the government decided and declared, once and for all, that it would not tax in-game virtual transactions, people could start using MMORPGs to hide real-world profits.
One might sell a million dollar house for $900K and $100K of in-game gold, where that $100K is the amount one would have otherwise taken as real-world profit. So no real-world taxes (or maybe even a loss), and one has in-game assets that can be used to pay other tax-cheats. Few of these tax cheats would take their real-world money out of the game - since they'd then have to pay taxes - but so long as there's a stable rate of exchange, and they can exchange in-game money for heavy real-world discounts on real goods, they don't care.
And of course, since the game isn't a bank, it doesn't have the reporting requirements that banks have, meaning that it'd quickly become the favored medium for black market transactions - financing drugs and terrorism and worse.
Which explains why we will keep getting these scare stories - the government wants to keep the whole mess from ever developing, so they don't have to actually engage in the messy practice of deciding how to tax virtual profits. But eventually - probably due to movement of drug money via MMORPGs - they will have to figure out a policy.
Probably it'll be fairly reasonable - most ordinary players won't ever be bothered. MMORPG companies will be required to report any people trading "gold" worth over some black-market amount, and some subset of those people will eventually find themselves being audited, and the dollar value of any real-world benefits gained in exchange for game gold will be taxed and fines assessed.
True, but back to the original article, unless you made income in the game that was more than the monthly fee you're paying, you'd never have to pay any tax.
Also, since the value of your "money" in game isn't in actual dollars, you wouldn't be taxed on it until you "realized" the profit, meaning sell your character or account, or sell your "gold" for real money. If you never sell anything in exchange for cash, you never realize a profit. It's the same as if you own stocks and the stock price goes up. You don't pay taxes on the capital gains until you actually sell the stock. It works the same with art, etc. (AFAIK).
"I have never let my schooling interfere with my education." - Mark Twain